Newspaper article THE JOURNAL RECORD

Travelers Successfully Sells off Distressed Real Estate Package

Newspaper article THE JOURNAL RECORD

Travelers Successfully Sells off Distressed Real Estate Package

Article excerpt

N.Y. Times News Service

The real estate fund run by George Soros and Paul Reichmann has made its first buy: a $634 million package of foreclosed real estate and troubled mortgage loans acquired from Travelers Corp., the insurance giant.

The deal, announced Wednesday, featured a perfect marriage of buyer and seller. Travelers had disclosed in the winter that it planned to sell off big chunks of its portfolio of distressed real estate, one of the biggest held by any insurance company. And the Soros-Reichmann venture has had hundreds of millions of dollars burning a hole in its figurative pocket since it was founded March 1 during a rising wave of commercial real estate bottom-fishing.

Soros, the financier, started the Quantum Realty Fund in association with Reichmann, head of Olympia York Developments Ltd., the crippled Canadian real estate empire. The Soros-Reichmann venture was second-highest bidder when a Manhattan skyscraper at Broadway and 47th St. was sold to Morgan Stanley this summer, and many people in the real estate world had been eagerly waiting to see what the fund's first purchase would be.

Further, many of Travelers' competitors, which also have big packages of unpleasant real estate assets, have been hoping Travelers could prove that it was possible to find a buyer for numerous buildings and mortgages.

Travelers said it was posting a $20 million loss from the sale, which company officials said leaves the company with $4.3 billion in foreclosed real estate and "underperforming" real estate assets. These include delinquent loans, loans in the process of foreclosure and loans that Travelers has not foreclosed on but instead has modified to give rates of return below market rates.

Travelers and Quantum said the portfolio included 12 commercial mortgage loans and 35 properties, including 6,000 residential units and 6 million square feet of commercial space, 60 percent of it office buildings and the rest hotels and shopping centers. Many of the properties are east of Mississippi, although the specific locations were not given.

Quantum said it paid about $300 million in cash, of which Soros supplied $90 million and the fund the other $210 million. The remaining $334 million of the $634 million purchase price, a Quantum press release said, "has been raised through a Wall Street investment firm in the form of an acquisition loan as a prelude to commercial mortgage securitization," in which the loans are pooled and then cut up and sold as securities. The Wall Street firm was not identified.

Reichmann was quoted in the press release as saying that the package would provide Quantum's investors "with a strong current cash flow as well as the prospect for significant capital appreciation as the property markets recover later in the decade. …

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